Collection of Overheads

Before overhead can be shared among departments and products, it must first be collected — that is, all the indirect costs of a period must be gathered together and accumulated under their proper code heads. Collection of overhead is the process of recording each item of indirect cost, as it is incurred, against its standing order number or code, so that at the end of the period the total of each type of overhead is readily available.

The main source documents from which overhead is collected:

• Stores requisitions / material issue notes — for indirect material (lubricants, consumable stores, small tools).
• Wage analysis sheets / time cards — for indirect labour (foremen, storekeepers, sweepers).
• Cash book and invoices — for indirect expenses paid in cash or on bill (rent, insurance, telephone, repairs).
• Journal entries and subsidiary records — for items not involving an immediate cash outflow, such as depreciation of plant and machinery, provisions, and outstanding expenses. …